Centrica to invest £725 million to build 270MW offshore wind farm and also announces equity partner and refinancing of existing wind portfolio

According to the Press Release, “Centrica plc, the parent company of British Gas, today announced that its 270 megawatt (MW) Lincs offshore wind project has received final investment approval, and that construction is expected to begin in 2010.

Lincs will be situated eight kilometres off the coast of Skegness next to Centrica’s existing wind farm developments at Lynn and Inner Dowsing and will comprise of 75 3.6MW Siemens turbines. Investment in this project is expected to total approximately £725 million and the wind farm should start generating power towards the end of 2012. When Lincs is completed, Centrica will have equity interests in operating renewable energy projects with an installed capacity of 650MW.

Under current UK Government proposals, Lincs will attract two Renewable Obligation Certificates (ROCs) for every megawatt hour (MWh) produced, following the UK Government’s decision in April to enhance the level of support provided for new offshore wind projects.

Centrica also announced that it has agreed the sale of a 50 per cent equity stake in its Lynn, Inner Dowsing and Glens of Foudland wind farms to the US-based investment management company TCW for a cash consideration of £84 million, and entered into agreements to raise approximately £340 million of non-recourse project finance facilities from a consortium of banks for these assets. The transactions value the wind farms at approximately £460 million in aggregate.  Profit on disposal of this 50 per cent equity stake will be around £50 million. Reported operating profit in the year ended 31 December 2008 from these wind assets was £17 million, however, the Lynn and Inner Dowsing wind farms were not fully commissioned until December 2008.

Centrica is also entering into a joint venture agreement with TCW to govern their ongoing relationship as co-owners of the Lynn, Inner Dowsing and Glens of Foudland wind farms.  The agreement contains customary rights for each party to acquire the other party’s shares in the joint venture company at fair market value following a material default by, or on the insolvency of, the other party.

Through its subsidiary British Gas Trading Ltd, Centrica will also enter into a 15-year Power Purchase Agreement (PPA) to off-take all the electricity production together with 50 per cent of the ROCs generated by the three refinanced wind farms.

Financial close on the non-recourse project finance facilities is expected to occur in November 2009 and the equity sale is expected to close before year end, conditional on receipt of European Community Merger Regulation (ECMR) approvals.

Source: Centrica PLC

Sam Laidlaw, Chief Executive of Centrica, said: “Our decision to build Lincs illustrates our continued commitment to develop renewable generation and confirms our position as one of the UK leaders in green energy. The Government’s enhanced financial framework for offshore wind has been fundamental in improving the overall project economics of this development.

‘The refinancing and equity sale of part of our existing wind portfolio underlines the quality of the operational assets and creates a structure for recycling Centrica’s capital and mobilising third party funds efficiently. This is a milestone in our renewables strategy and we look forward to working together with TCW who bring significant global expertise in energy investments.’”

Source: Centrica PLC Press Release